A loan modification is a change made by a lender to the terms of an existing loan. It may involve a reduction in the interest rate, an extension of the payment period, a different type of loan, or any combination of the three.
Typically, such changes are made because the borrower cannot repay the original loan. The most successful loan modification processes are negotiated with the help of an attorney or settlement company. Some borrowers are eligible for government loan modification assistance.
Getting a mortgage loan modification could mean extending the length of your term, lowering your interest rate, or changing from an adjustable-rate mortgage to a fixed-rate loan. Although the duration of your modification depends on the lender, the result is lower and more affordable monthly mortgage payments. Foreclosure is an expensive process for lenders, so many are willing to consider loan modification as a way to avoid it.
A real estate short sale is when a homeowner in financial difficulty sells their property for less than the amount owed on the mortgage. The property buyer is a third party, not the bank, and all proceeds from the sale go to the lender. The lender forgives the difference or obtains a deficiency judgment against the borrower requiring the lender to pay all or part of the difference between the sale price and the original mortgage value. For example: If a seller still owes a bank $200,000 on their mortgage, but may only be able to sell the house for $175,000 on the open market, then both the house and the Seller may qualify for a short sale, and the bank can accept Accept $175,000 as payment in full.
Why would anyone agree to do this? The foreclosure process can be very long and expensive for the bank. It can also be very frustrating and emotionally draining for the Seller. Many homeowners who can no longer afford to keep up with their mortgage payments find that a short sale is the best alternative to bankruptcy or foreclosure proceedings. It can also save your credit from total disaster. When lenders agree to a real estate short sale, they are betting that they can avoid a lengthy and costly foreclosure process. It is supposed to create a win-win scenario for all parties involved.
A mortgage forbearance agreement is between a mortgage lender and a delinquent borrower. The lender agrees not to exercise their legal right to foreclose, and the borrower agrees to a mortgage plan over a certain period, which will bring the borrower up to date with his payments.
The coronavirus outbreak has drawn the help of tolerance from Fannie Mae and Freddie Mac, which guarantee more than two-thirds of all mortgages and 95% of mortgage-backed securities.
Forbearance gives the borrower time to pay mortgage arrears. This is advantageous to the struggling borrower, but offering forbearance also benefits the loan owner, such as a bank, which often loses money in foreclosure after paying the fees associated with the process. However, loan servicers, who collect payments but do not own the loans, may be less willing to work with borrowers on forbearance relief because they do not take as much financial risk.